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okay so for the this next video lectures
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we are still in the substantive
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procedures to audit the asset accounts
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so this time we will be discussing on
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the substantive procedures to be
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performed by the auditor to audit the
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investment securities
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okay
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so
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first
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the auditor can inspect and count
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securities that are on hand
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or often these are placed in a bank safe
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deposit box as a form of internal
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control to minimize the
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uh
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mishandling
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okay or misappropriation of
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this investment securities by the
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employees or even the management of the
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npt
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so
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this
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inspection and counting will also help
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or assist the auditor in determining the
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existence of
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the
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investment or of this investment
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securities that are being claimed okay
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by the entity
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so this procedure okay as mentioned will
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address the existence
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and also this will provide any evidence
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that no fraud
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okay
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which is in the form of a substitution
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meaning
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um there is unauthorized sales or
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subsequently purchase of such
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investment securities
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okay has been
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has occurred during the year
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so this inspection will lead the auditor
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to determine the existence and any fraud
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that may exist in
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this investment securities
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so a client employee
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should be rep be present
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during the inspection okay and a
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counting of those securities on hand so
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this is so to avoid any confusion over
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any missing securities of course if the
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auditor will inspect any thing that the
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entity owns
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there should be someone
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an employee or even
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the member of the management who will be
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present during such uh conduct of
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inspection and counting because in the
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case where the auditor will found out
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that there are any missing
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items then
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um
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they
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they will be
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informed immediately and those persons
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who will have the responsibility over it
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will
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look for the answers
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or the reason why there is
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a deviation from what is recorded and
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what is existing okay on hand in
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the
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entity
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so in examining the security
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certificates
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here the auditor will determine whether
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these securities are
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held or identical
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to those which are recorded in the books
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okay or
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for example
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all those
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security certificates um present or
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existing should also be recorded so this
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can be detected by the auditor using the
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certificate numbers
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uh number of shares face value and other
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details which can be taken from the
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certificate okay to make sure that this
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are
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recorded properly
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and completely
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okay aside from the inspection and
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counting the auditor can also obtain
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confirmation of the securities
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which are in the custody of an outside
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party so this can be
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held in the safety deposit
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box in a bank or in other financial
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institutions who
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are offering in case the handling of
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such
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investment securities so here
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uh the auditor can ask from them
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directly if this are indeed existing
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okay
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if the client securities are held by
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an independent custodian
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like for example
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this or held by a bank
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or a trust company so
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any evidence related to the existence
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assertion
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will be obtained by the auditor by using
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the confirmation procedure okay for the
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securities
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from such independent custodians so as
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mentioned also
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earlier okay aside from that
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the auditor can also
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perform simultaneous verification
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okay so here
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um
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in this case uh simultaneous
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verification is
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uh inspection
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and at the same time
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um confirm or for example he is
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confirming from an outside party so at
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the same time
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he is uh
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inspecting okay those items because this
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is uh in the case where the entity
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uh has given the
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costuming ship
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okay to a third party or to those
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financial institutions
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which provides such
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uh services
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okay meaning there is no
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securities
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present in the entity so everything is
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in the hands of
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uh
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the
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custodian or trustee
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okay
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[Music]
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another
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so in this case owing to the liquid
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nature of some securities
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like for example the financial asset
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through fair
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at fair value i mean through profit or
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loss so in this case uh the auditor
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can inspect
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uh this
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securities
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normally at your end simultaneously with
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the audit of cash and other related
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items so uh in this case aside from uh
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the investment account he can also uh
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during this um
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procedure or substantive procedure you
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can also audit at the same time the
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other accounts okay like in this case
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aside from auditing investment
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securities he can also touch cash and
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other related items to it
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okay
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and also performing other substantive
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procedures that
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is
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applicable okay to that specific account
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so and aside from those mentioned so
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there are also other typical substantive
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audit procedures that the auditor can
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perform
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so first
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the auditor can review
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the disclosures okay required by the
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framework okay for
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securities or investment securities
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next he can also inquire from the
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management about any pledging or
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of these investment securities if this
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has been
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pledged for a loan
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or credit and also to verify
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that
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any disclosures required by the standard
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is presented by the entity together with
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the financial statements
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next um the auditor can also review the
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loan agreements okay for such pledging
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of the investment securities
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uh another
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a review
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of uh the classification of the
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securities
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because in this case securities are
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um
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according to their nature
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okay and um
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the existing
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uh quality
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or how this uh investment
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will
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uh provide the benefit and for how long
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okay and how it should it will be
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accounted for and measured okay these
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are classified according to
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uh
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if they are
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classified under the financial asset at
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fair value through profit or loss
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or
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through other comprehensive income or at
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amortized cost
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okay so each of this
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um type of
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classification of securities has their
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own
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guidelines based on the standards on how
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to measure
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and how to
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uh
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how to measure it
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initially
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okay how to allocate uh any infirm uh
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any
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uh decline okay or impairment in their
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value
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how to recognize the
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received dividend or
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share from the profit
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and how to
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uh
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measure it subsequent to initial
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recognition
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okay
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so this should be properly accounted by
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the entity using the guidelines provided
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in the standard okay
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because if the entity will
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um
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will not follow a certain guideline then
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it will have the effect of
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understating or overstating this uh
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uh investment security accounts
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okay next
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the auditor can also vouch of
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the purchases and sales of such
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securities during the year so again
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vouching is done
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from
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the records the books of accounts of the
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entity and then
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referring this to any um
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documents
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okay which serves as the source
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documents for this types of transactions
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relating to our
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investment security accounts
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okay next is the auditor can also review
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of the cut off so again cut off are used
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to determine if the entity was able to
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record those transactions pertaining to
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the correct accounting period
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next the auditor can also perform
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analytical procedures okay that will
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serve as uh corroborating evidences
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about
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the existence uh completeness
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and other assertions that may that the
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auditor may um
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me may satisfy okay
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based on the assertions given by
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the
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management
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next uh the auditor can also reconcile
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the amounts of the dividends received by
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the entity which normally if there are
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this is public
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entities in which this investment are
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placed
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then the dividends uh are usually
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published
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okay or
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the auditor can
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uh take this
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information from the records which are
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generally available from the database
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okay
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from the internet
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to verify if
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the amount
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or the value of the investment is
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correct
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okay and completely recorded
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because normally when a dividend is
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given dividend are
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based normally
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in
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the number of shares
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owned by the entity or based on the
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amount of their investment
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okay so therefore the auditor can
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determine the completeness and accuracy
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of such balances
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next
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the auditor can also food
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and
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extends a summary investment security
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schedule
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to verify if there are clerical errors
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next
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again the same with other accounts he
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can reconcile the inventory schedule
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summary to the general ledger for
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accuracy because again these accounts
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are normally forwarded to the financial
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statements
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another is the auditor can also test
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the amortization of premiums and
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discounts the purpose of this is to
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verify that investments are properly
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valued because in this case if
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investment has
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or was um
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placed with premium or discounts uh we
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all know that this needs to be amortized
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because
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uh amortization of premium and discount
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is
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accounted for separately from the
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principal amount of the investment
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next
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the auditor can also determine the
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market value of the securities
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classified as
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financial assets
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at fair value to
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pnl or oci
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case again we have the
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um
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guidelines on how to
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classify and measure these types of
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security investments
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okay and lastly the auditor can also
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review the audited fs of major
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investments
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the test whether they are properly
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valued
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at
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year end
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okay so normally
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um if this are audited so
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again the auditor will also
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um
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[Music]
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look into the auditor's report if the fs
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are
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fairly stated or not
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or any statements has been corrected
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and if there are any misstatements
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related to the invent investment
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accounts okay to verify if it was
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properly valued indeed at year end
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okay so those are
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the different substantive procedures
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that the auditor can perform in auditing
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the investment securities account